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Monday, October 5, 2015

Bullish Reversals in Oil and Gas

Friday's trading session ended with bullish sentiment left to cultivate after the closing bell. The weekend wasn't enough to separate those feelings from the investor's portfolios, and they might not be speculated feelings as Monday's trading session showed the real possibility of a bullish reversal. The Dow Jones jumped 1.85% to post total gains of 304 points, beating Friday and approaching the 50-day simple moving average with hints of a reversal. Volume today was just under that of Friday's with a convincing move nonetheless. Five-day performance jumps to 4.84%. The S&P 500 large-cap index showed gains of 1.83%. The jumps sent the price level surging above the 20-day moving average with a chance at approaching the 50-day resistance level. Five-day performance increases to 5.59%. The reversal indicators seem contagious, and oil and gas stocks are feeling it too.

WTI crude oil finished today with a $0.55 gain after the bullish trading day on Friday. Its increase of about 1.20% bounced off a 7-day trendline and a 30-day trendline to surge forward with decent volume almost as strong as Friday. The gains come after the development of a symmetrical triangle continuation pattern that traced the 30-day simple moving average as the support. After three bounces off that level, traders should be looking for a continuation of the bullish trend that exploded at the end of August. If the flag "flies at half mast" like it usually does, the price target can be set at $56.50 with a bullish MACD crossover and increasing buying power from the money flow diagram. Look for a day of positive news to boost sentiment on the event of new rig or production data. That respective trading session should boast higher volume levels and maybe even a gap if the news is available early.

As a result of the surging gains in crude oil price, ETFs connected to their price have experienced similar technical activities. UCO jumped 3.19%, UWTI rocketed up 5.02%, and OIL gained 1.76% on Monday's great trading day. Above, a chart describes the movement of the most common ETF related to U.S. crude oil status. The money flow diagram shows an increase in volume behind the derivative with an MACD crossover supporting the surge. Rising volume through the past five trading days also gives the increase significance. Price seemed to be stuck in a channel with a month of trading, continuation activity, but the recent growth could give grounds for a breakout past the resistance. In fact, today the security opened with an upward gap which could signal a breakout. The past two trading sessions show the price bouncing off the 30- and 7-day moving averages with the 30-day moving average serving as the support which was repelled. OIL may be heading for a continuation of the bullish trend in August. Maybe a replication of the gains in that month?

Up next, the performance of the oil and gas companies is analyzed with this chart. It is not zoomed in as much because the movement is much easier to see. Over the summer, there is an overall bearish movement to a low point in late August where the market shifts to a consolidation phase with a wide trading channel. The support around 1020 is tested twice with the second bounce leading to the four-period breakout move. The MACD line shows a very convincing crossover with the continuation of a widening spread. On top of that, today's trading session opened with a breakout gap that lead to testing the support and the Bollinger Ceiling. Price levels broke through the 50-day simple moving average which meets up with the Bollinger Top and the resistance level. These next few trading days will determine if the movement is a false breakout, but RSI shows no reason to think these companies as overbought. I expect a resistance turned support as well as a retracement of 50-66% of the losses sustained in the summer.

These three charts show a significant shift in the energy sector's main components, oil and gas related securities. Movement this week will help to differentiate between false signals and a true shift. Major changes from bearish sentiment to bullish mentalities might have to be supported by news reports that push prices higher. Look for rig data or earnings to set off a domino effect that could reverse the losses of Q3. After reviewing the data from that quarter, one could say the dismal performance was a contrarian indicator for the reawakening of the bulls. Nevertheless, economic recovery in China and emerging markets needs to remain on track for these major gains to breakout. If the institutional tide changes, investors could see high volume levels as the selling of old hedges is followed by the establishment of new ones. Going forward, both the firm and the individual trading oil and gas futures and futures related securities should remain aware of these bullish indicators and be prepared to react if these signals turn out to be robust bullish gains.